Loar Grows 16% Organically, Guides a Record 2027 — and Keeps Getting Cheaper

A record quarter that the tape refuses to pay for

Loar's third quarter had everything a small-cap industrial investor says they want: record sales, record adjusted EBITDA (the 17th consecutive quarterly record), record free cash flow up 46% year over year, and roughly 16% organic revenue growth. Gross margin landed at 53.2% in the July quarter, with an operating margin around 24%, and the company's cash engine is genuinely unusual — free cash flow has run above GAAP net income for several quarters, a conversion ratio of roughly 1.5x in the latest reported period.

And yet the stock sits 26.6% below its May 2025 peak and is down 9.1% over the last 90 days, with no news event to explain it. The operating story and the equity story have decoupled. That gap is the only thing worth arguing about here.

"Nothing has changed in the macro" — except the macro inside the guide

Dirkson Charles opened with a flat assertion: “Today, nothing at all has changed in the macro.” — Dirkson R. Charles, Chief Executive Officer and Executive Co-Chairman · 2026-11-05 Then he built a 2027 that assumes the macro is worse. Initial guidance for calendar 2027: sales of $745–755 million, adjusted EBITDA of $312–317 million, a 42% adjusted EBITDA overall margin, and adjusted EPS of $1.64–1.68. That is a step up in margin from the 40.8% just printed and well above the 39% IPO-era target for 2026 that they have already blown through.

The tell is the aviation assumption underneath it. Loar plans 2027 against flat-to-up-2% available seat miles, explicitly because of sustained higher oil price. This is not a Loar-specific worry; it is the same higher fuel costs theme that ran through airline commentary market-wide this year.

The way we kind of think about forecasting into the future given where oil prices is today, is we assume more of the same... that is the assumption. that is not the expectation, but the assumption.

That distinction is the whole method. Loar's demand signals — “Our book to bill across all our end markets was north of 1.1.” — Dirkson R. Charles, Chief Executive Officer and Executive Co-Chairman · 2026-11-05 — contradict the macro assumption they guided to, and management says so out loud. Commercial OE grew 20% in Q3 and has been the fastest-growing end market for three straight quarters; backlog is at records across end markets. Defense posted its best growth quarter of the year on European rearmament and U.S. stockpile replenishment, but the company still calls that end market choppy by nature. They deliberately low-balled the macro and let the beat come from execution.

The M&A drumbeat goes quiet

Here is what actually changed this year, and what the market may be punishing. Loar closed LMB in December and Harper in January. Since then: nothing. For a company whose stated identity is a serial acquirer completing one or two deals a year, 2026 has produced zero.

The short answer, John, is yes and yes. Meaning we are seeing more deal flow. We are seeing more active sellers.

That was Brett Milgrim in February, describing one-to-two deals a year as "simply as a proxy" that could be "significantly more." Nine months later the answer is “the opportunity set is enormous” — Brett N. Milgrim, Executive Co-Chairman · 2026-11-05 and “it is lumpy. it is unpredictable.” — Brett N. Milgrim, Executive Co-Chairman · 2026-11-05 Nothing has been repudiated — the M&A pipeline language is warm, and Milgrim insists the competitive set for assets has not changed even as aerospace capital-markets activity rose. But talk is not a closing.

The balance sheet explains part of the discipline. Effective net cash is a net debt position of roughly $842 million, and interest coverage has compressed from a 4.8x peak to about 2.1x as higher interest costs bite — full-year interest expense goes from about $80 million in 2026 to about $83 million in 2027. Every additional turn of leverage now costs real earnings. That is a quiet but material change from the leverage-light position of a year ago.

New business is the new engine — and the guide says so

The most consequential strategic statement on the call was a reordering of the growth algorithm. Historically Loar ranked volume, then price, then new business. For 2027 it is new business, then price, then volume. That is the inflection point management has been flagging for several quarters, now baked into a number: the new business ramp is "a lot faster" than prior cycles and margins on it are exceeding plan.

The pipeline was worth $600 million in February and $750 million by mid-year; of that, roughly $200 million is won, two-thirds original equipment. Charles would not put a new number on it — “it is higher this quarter than it was last” — Dirkson R. Charles, Chief Executive Officer and Executive Co-Chairman · 2026-11-05 — having convinced his team to publish the pipeline only annually, with the next update in Q1 2027. Still early innings is doing a lot of work in that sentence.

The capital budget corroborates the story. Capex steps to about 4% of sales, roughly $30 million, from a 3% historical norm, aimed explicitly at belt restraints, fans and motors, carbon brakes, and C-track fittings. On the last of those, Ian McKillop was candid that airline pain is an opportunity: Loar is "investing heavily on our capabilities on the brake side" where it sells PMA parts, and carriers under margin pressure are more willing to adopt them. That is a genuine second lever, and a slow one — certification, not demand, is the gate.

What the market is actually pricing

At 111x trailing net income and 72.5x free cash flow, Loar is still an expensive stock — just 32-39% less expensive than a year ago. The de-rating has happened into accelerating organic growth, which is the classic setup for either a re-rating or a value trap.

One detail deserves scrutiny. GAAP net income is guided to $91–95 million in 2027 against $60–64 million in 2026 — about 45% growth versus roughly 15% EBITDA growth. Interest expense and amortization both rise, and stock comp doubles to $18 million. So that earnings jump is a below-the-line normalization, not an operating acceleration. Anyone modeling 2027 off the GAAP EPS bridge alone is being flattered.

The honest read: Loar ran a clean quarter, guided 2027 above its own historical new business pipeline-driven growth rate, and asked investors to accept a flat-capacity aviation world as the base case. What it did not deliver was a deal, and the stock is trading like the market wants proof the compounding machine still has an inorganic gear. Conviction is abundant on the call. The tape wants receipts.